The transcriptional trans-activating proteins (Tat) proteins encoded by lenti-viruses such as equine infectious anemia virus (EIAV) and the human immunodeficiency virus (HIV) bind to specific RNA hairpin structures termed trans-acting responsive (TAR) element that position them for interactions with the transcription apparatus. The Tat proteins are predicted to contain an RNA-binding domain and an "activation" or effector domain. The EIAV and HIV-1 Tat proteins (E-Tat and H-Tat, respectively) contain two conserved peptide motifs but are otherwise quite dissimilar. Furthermore, E-Tat and H-Tat do not interact with the heterologous TAR RNA element. We have examined the structure, function, and mechanism of Tat proteins by exchanging domains between E-Tat and H-Tat and by tethering Tat sequences to an RNA operator via a bacteriophage RNA-binding protein. We have also investigated the ability of heterologous Tats or Tat polypeptides to inhibit Tat-mediated trans-activation. These strategies revealed that both E-Tat and H-Tat appear to be simple, modular proteins in which the N-terminal half contains the activation domain, and the C- terminal half is responsible for TAR binding. The activation domains of both proteins contain a highly conserved core sequence; the E-Tat activation domain consists of only 15 amino acids, whereas the H-Tat activation domain is more complex and is composed of 47 amino acids. The activation domains of the two proteins are interchangeable, and competition experiments suggest that they interact with a common cellular factor. The TAR-binding domains of both proteins contain a cluster of basic amino acids; in H-Tat this sequence of about 10 residues is sufficient for RNA binding, while E-Tat requires 26 residues for TAR binding. Mutagenesis of residues in this part of E-Tat indicated that this region may be highly structured to form an RNA-binding pocket.